Doctrine: The provisions of paragraph 3 of Article 1484 of the Civil Code which precludes further

action against the purchaser to recover any unpaid balance of the price once the chattel mortgage
has been foreclosed do not apply to a loan contract with the accessory chattel mortgage contract.

EQUITABLE SAVINGS BANK v. ROSALINDA PALCES

G.R. NO. 214752, MARCH 09, 2016
PERLAS-BERNABE, J.

FACTS:
Respondent Rosalinda Palces purchased Hyundai Starex GRX Jumbo (subject vehicle) through
a loan granted by petitioner in the amount of P1,196,100.00. In connection therewith, respondent
executed a Promissory' Note with Chattel Mortgage in favor of petitioner, stating, inter alia, that:
(a) respondent shall pay petitioner the aforesaid amount in 36-monthly installments of P33,225.00
per month, beginning September 18, 2005 and every 18th of the month thereafter until full payment
of the loan; (b) respondent's default in paying any installment renders the remaining balance due
and payable; and (c) respondent's failure to pay any installments shall give petitioner the right to
declare the entire obligation due and payable and may likewise, at its option, x x x foreclose this
mortgage; or file an ordinary civil action for collection and/or such other action or proceedings as
may be allowed under the law.
From September 18, 2005 to December 21, 2006, respondent paid the monthly installment of
P33,225.00 per month. However, she failed to pay the monthly installments in January and
February 2007, thereby triggering the acceleration clause contained in the Promissory Note with
Chattel Mortgage and prompting petitioner to send a demand letter to compel respondent to pay
the remaining balance of the loan in the amount of P664,500.00. As the demand went unheeded,
petitioner filed the instant Complaint for Recovery of Possession with Replevin with Alternative
Prayer for Sum of Money and Damages against respondent before the RTC.

In respondent’s defense, while admitting that she indeed defaulted on her installments for January
and February 2007, respondent nevertheless insisted that she called petitioner regarding such
delay in payment and spoke to a bank officer, a certain Rodrigo Dumagpi, who gave his consent
thereto. Respondent then maintained that in order to update her installment payments, she paid
petitioner the amounts of P70,000.00 on March 8, 2007 and P33,000.00 on March 20, 2007, or a
total of P103,000.00. Despite the aforesaid payments, respondent was surprised when petitioner
filed the instant complaint, resulting in the sheriff taking possession of the subject vehicle.
The RTC ruled in petitioner's favor. It observed that although respondent made actual payments
of the installments due, such payments were all late and irregular, and the same were not enough
to fully pay her outstanding obligation, considering that petitioner had already declared the entire
balance of the loan due and demandable. However, since the writ of replevin over the subject
vehicle had already been implemented, the RTC merely confirmed petitioner's right to possess
the same and ruled that it is no longer entitled to its alternative prayer, i.e., the payment of the
remaining balance of the loan, including penalties, charges, and other costs appurtenant thereto.
The CA affirmed the RTC ruling with modification: (a) ordering petitioner to return the amount of
P103,000.00 to respondent; and (b) deleting the award of attorney's fees in favor of petitioner for
lack of sufficient basis. It held that while respondent was indeed liable to petitioner under the
Promissory Note with Chattel Mortgage, petitioner should not have accepted respondent's late
partial payments in the aggregate amount of P103,000.00. In this regard, the CA opined that by
choosing to recover the subject vehicle via a writ of replevin, petitioner already waived its right to
recover any unpaid installments, pursuant to Article 1484 of the Civil Code. As such, the CA
concluded that respondent is entitled to the recovery of the aforesaid amount.
ISSUE:
Whether or not respondent is entitled to a return of the amount of P103,000.00 representing the
latter's late installment payments
HELD:
NO. Article 1484 of the Civil Code, which governs the sale of personal properties in installments,
states in full:
Article 1484. In a contract of sale of personal property, the price of which is payable
in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee’s failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case,
he shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void. (Emphases
and underscoring supplied)
In this case, there was no vendor-vendee relationship between respondent and petitioner. A
judicious perusal of the records would reveal that respondent never bought the subject vehicle
from petitioner but from a third party, and merely sought financing from petitioner for its full
purchase price. In order to document the loan transaction between petitioner and respondent, a
Promissory Note with Chattel Mortgage29 dated August 18, 2005 was executed wherein, inter alia,
respondent acknowledged her indebtedness to petitioner in the amount of P1,196,100.00 and
placed the subject vehicle as a security for the loan.30 Indubitably, a loan contract with the
accessory chattel mortgage contract - and not a contract of sale of personal property in
installments - was entered into by the parties with respondent standing as the debtor-mortgagor
and petitioner as the creditor-mortgagee. Therefore, the conclusion of the CA that Article 1484
finds application in this case is misplaced, and thus, must be set aside.
The Promissory Note with Chattel Mortgage subject of this case expressly stipulated, among
others, that: (a) monthly installments shall be paid on due date without prior notice or demand;
(b) in case of default, the total unpaid principal sum plus the agreed charges shall become
immediately due and payable; and (c) the mortgagor's default will allow the mortgagee to exercise
the remedies available to it under the law. In light of the foregoing provisions, petitioner is justified
in filing his Complaint before the RTC seeking for either the recovery of possession of the subject
vehicle so that it can exercise its rights as a mortgagee, i.e., to conduct foreclosure proceedings
over said vehicle; or in the event that the subject vehicle cannot be recovered, to compel
respondent to pay the outstanding balance of her loan. Since it is undisputed that petitioner had
regained possession of the subject vehicle, it is only appropriate that foreclosure proceedings, if
none yet has been conducted/concluded, be commenced in accordance with the provisions of
Act No. 1508, otherwise known as "The Chattel Mortgage Law," as intended. Otherwise,
respondent will be placed in an unjust position where she is deprived of possession of the subject
vehicle while her outstanding debt remains unpaid, either in full or in part, all to the undue
advantage of petitioner - a situation which law and equity will never permit.

Further, there is nothing in the Promissory Note with Chattel Mortgage that bars petitioner from
receiving any late partial payments from respondent. If at all, petitioner's acceptance of
respondent's late partial payments in the aggregate amount of P103,000.00 will only operate to
reduce her outstanding obligation to petitioner from P664,500.00 to P561,500.00. Such a
reduction in respondent's outstanding obligation should be accounted for when petitioner
conducts the impending foreclosure sale of the subject vehicle. Once such foreclosure sale has
been made, the proceeds thereof should be applied to the reduced amount of respondent's
outstanding obligation, and the excess of said proceeds, if any, should be returned to her.